The S&P 500 extended its charge higher with another 0.7 percent rally this past session. Yet, despite the risk appetite this traditional represents, the safe haven dollar gave up little ground it its three-day slide. This uneven response to speculative positioning tells us that the appetite for higher yielding and thereby more risky assets is not particularly deep. For drive, there was little outside of further de-escalation of an impending US strike on Syria to highlight for fresh risk positioning. Yet, with rebound moves – different from outright rally – from the likes of the S&P 500, carry trade, yen crosses and emerging markets; there is a consistency that we haven’t seen much of lately.

Yet, the recent spat of uniform risk drive faces a very severe risk: the FOMC rate decision. Though still a week away, the probability of seeing a Tapering of the group’s renowned QE3 stimulus program represents serious risk for markets that have climbed on record leverage (cheap funding), against fundamentals and severely anemic participation. We often see trends dry up before event risk. And this is a big risk.

British Pound: Employment Data Could Decide GBPUSD’s Fate at 1.5750

The sterling’s performance over the past 24 hours and week have been a mixed bag. Performance between GBPJPY and GBPNZD seem to follow the lines of traditional risk appetite trends. Without a definitive momentum of its own, the sterling is likely to defer its performance to more active counterparts. That is a dangerous position to be in when the cable (GBPUSD) is stationed just below a multi-month high at 1.5750. Yet, we may have some of the ambiguity of break-or-reverse, hover-or-trend removed by key event risk. On deck, we have August labour figures. The consensus forecast calls for another hefty 21,000 drop in jobless claims last month and a hold in the July unemployment rate at 7.8 percent. Such forecasts present a good opportunity to generate volatility on a ‘surprise’.

The for the yen crosses continues. The Japanese currency tumbled yet again Tuesday sending its pairings between 1.7 percent (AUDJPY) to 0.6 percent (CHFJPY) higher. For a number of the liquid yen crosses, this most recent push has resulted in serious technical breaks. USDJPY has cleared 100, EURJPY a three-month congestion pattern and GBPJPY ripped to multi-year highs. With support from the Nikkei 225 and global equity index benchmarks, the drive seems well supported on a fundamental basis. However, just as there is doubt over the strength of the capital market’s momentum ahead of next week’s FOMC decision, there are serious questions about the follow through on the yen’s plunge. As we await a clear risk on / risk off assessment, it is worth remember actual carry on these pairs is exceptionally low historically.

New Zealand Dollar: Risk of Volatility on the RBNZ Rate Decision? The New Zealand dollar has enjoyed considerable strength of late in large part due to the swell in risk positioning across the capital and FX markets. That questionable sentiment theme has supplanted the recent moderation in interest rate expectations that had supported a kiwi climb against both funding currencies and the Australian dollar alike. Yet, now FX traders are likely to follow their assessment of how much yield the currency will provide in the foreseeable future over there general appetite for carry – unless there is a sizable risk adjustment. On deck, we have the RBNZ rate decision. It is highly unlikely that this meeting results in any significant changes to monetary policy, but it will help shape the timing for the first and subsequent rate hikes. This morning the12-month rate forecast jumped 20bp to price in 89 bps worth of hikes.

Euro Staves Off Selling Pressure with Another Delayed Berlusconi Vote

There is plenty of day-to-day event risk coming down the pipeline out of the Eurozone; but for euro traders – it simply isn’t market-moving enough. On the economic front the ‘final’ reading of 2Q Italian GDP was revised downward, the EU Parliament reached an agreement with the ECB on banking oversight, ECB member Asmussen called for minutes to follow central bank rate decisions and the EFSF (European Financial Stability Fund) sold 7-year bonds for the first time since February. All of this exerts influence over longer-term European investment or perhaps encourages capital from one corner of the Eurozone to another (periphery to core member), but it doesn’t hit the systemic risk needed to drive capital into or out of the region’s boarders. One of the most prominent risks in that regard is the uncertainty surrounding Italy. The Senate Committee deliberation the expulsion of former Prime Minister Silvio Berlusconi was deferred for a second time – they next meet Thursday. Berlusconi’s political party has threatened to torpedo the Coalition government if he is cast out. Yet the market remains blasé.

US Oil Only Moderately Lower after US President Obama Postpones Syria Action

The October West Texas Intermediate oil futures contract – the active US-based benchmark – dropped for a second day this week. The 1.9 percent ($2.13) was the sharpest downside move the energy market benchmark suffered since August 20. This extended decline on the reversal back below $110 while stocks continue higher confounds the typical risk association we attribute to the commodity. Yet, the defiance of such a prominent fundamental them doesn’t mean the markets have reverted to the Wild West. Instead, we are seeing the prioritization of a more overbearing theme: supply fears related to the United States pressure on Syria. Crude’s initial advance to 29-month highs was founded in large part on supply chain concerns that would evolve from a possible Western strike on Syria’s government for reportedly using chemical weapons on its citizens. With tepid public and international support, risk of an attack eased, but President Obama’s confirmation this morning solidified it.

Since hitting its four-month high on August 28, gold has retreated 4.9 percent through Tuesday’s close. Whether this modest correction takes the next step or not is critical to gauging medium-term momentum for the precious metal. Technical traders will recognize the $1,355 as a confluence of support derived from range congestion, trendlines and the 100-day Simple Moving Average. Fundamental traders can use it as a line in the sand should there be trouble defining the market’s lean. Looking at the backdrop for possible catalysts, we have seen the Syria standoff cool and risk appetite steady across the standard capital market benchmarks. Perhaps most interesting though is that this slide has developed alongside the dollar’s decline – however tame it may be. This certainly detrimental to gold bulls’ position. It is worth considering how the alternative ‘store of wealth’ would react should the dollar post a recovery. Most likely with a critical breakdown.

With the FOMC September meeting next week, U.S. data must remain somewhat strong in order to continue to justify a September taper. On the backs of disappointing NFPs, Fed members will surely be looking at incoming data on mortgage applications.